1. Field of the Invention
The invention generally relates to data processing systems and methods, and more particularly to systems and methods for valuing a bundle of constructs that may individually fail, in case of a separation event causing a bundle of constructs to separate a failing construct from the bundle.
2. Description of the Related Art
Many techniques exist where a bundle of constructs is used that may individually fail. Constructs may be hardware arrangements in computer systems or other automated systems, or may be software routines. It is further well known in the art that even more abstract constructs exist such as a conditional relationship between physical or non-physical entities.
Any such construct may fail, in the sense that the task or function assigned to that construct is not (completely) fulfilled. For instance, a hardware component may break, a software routine may disfunction or even stop to be performed, or a condition can lead to negative results or can be rendered void.
Another field where such techniques can be applied to is the valuation of futures contracts that are based on a basket of credit default swaps as underlyings. Credit default swaps are the most commonly traded credit derivatives. A credit default swap is a contract where one party (the “protection seller”) receives a premium from another party (the “protection buyer”) for assuming the credit risk of a specified obligation. In return for this premium, the protection buyer will receive a payment from the protection seller upon the occurrence of a credit event.
Generally considering bundles of constructs, any failing construct may be separated from the bundle. For instance, a failing hardware component may be separated from other hardware elements, and a failing software routine may be separated in the sense that the remaining software continues to work. In the example of a basket of credit default swaps, the credit default swap having failed may be removed from the basket.
When valuing such bundles of constructs, a value is to be determined that is somehow descriptive for the bundle or one or more of its properties. Taking the example of a bundle of hardware constructs, the bundle may be valued to calculate a value indicating a degree of functionality, completeness, utility or usability. The value may also indicate any other property of the hardware arrangement such as an overall response time, a data processing capacity, or the like. Taking the example of a bundle of software routines, the value may be similar in that it describes a degree of errorlessness, processing speed, or the like. In the example of a basket of credit default swaps, the value may be the price of the futures contract.
In case of a separation event, the present value of a bundle of constructs will experience some unsteadiness. For instance, if the value of the bundle of constructs indicates some functionality degree, a separation event that causes a failing construct to be separated from the bundle will lead to an abrupt change in the value. Similarly, separating a credit default swap from a basket will lead to price swings.
Such unsteadiness, however, is often undesirable in case the value of the bundle of constructs is monitored over time. It is therefore found desirable to achieve a valuation technique for a bundle of constructs where the observable influence of a separation event is reduced.